6 ways to find the right investor for your start-up
Investment. A regular topic of conversation within and outside of the One Roof walls. We find many founders often get swept up in the idea of needing capital in order to grow their business. Our advice? Bootstrap as long as you can. This means running with as little as possible in the way of financial resources but it generally gives you the extra push to innovate and get ahead on your competition through deep rooted, well informed and smart concepts and ideas instead of relying on cash flow to get you there.
But, we know, there comes a time when many businesses outgrow bootstrapping and in order to scale, you need to seek investment. It's an important journey that will take you away from the core of your business and can consume your time and energy. You need to be prepared and ideally you want to get it right the first time.
Unfortunately, according to the Australian Financial Review, female founders only receive 26% of venture capital in Australia (although we think it's likely even less than that!). That’s not great odds. And whilst we can’t close the gender gap overnight, we are going to share the 6 ways to look into raising capital, as tried and tested by our female founders.
Here are 6 ways to find the right investor for your start-up:
1. Friends & Family
Friends and family can be tricky territory. The upside? They’re often your biggest cheerleaders and want to help you succeed. The downside? It’s always a risk to combine money with your family and friends. Consider not going big and not getting equity involved. A small interest free loan could be the way to go here, as long as you both understand the risks and they know they may not get it back. If you need to go bigger? Cast the net a little wider and explore one of the options below.
2. Angels and VC's
Angel investors and venture capitalists generally provide capital for businesses in exchange for convertible debt or ownership equity. They can be a really great resource as they often have a wealth of experience, contacts and advice to offer to support promising ventures. They’ll typically be most interested in tech and highly scalable businesses so this avenue may not be for everyone. A word of advice? This investor will be with you for the journey so ensure it’s a good fit. To value your time, do the research. Who do they invest in? What type of businesses or industries are they interested in? At what stage? Best to be overly prepared. And know your pitch inside out. You are selling a vision and a dream (particularly at the early stages of your business). Most investors are buying into you as the founder, your passion, your vision and your persistence.
You’ll find groups that specifically support female founders such as Scale Investors and Supporting Women Founders. Angel investors will typically come in at the early stage of your business investing smaller amounts of around $500,000 whereas VC's will likely invest at a later stage in amounts beyond $1million. Examples of VC's in Australia include: Blackbird Ventures, SquarePeg Capital, Blue Sky and Rampersand. For more tips on how to approach venture capital, sign up to Both Sides of the Table newsletter. We also currently host Adrian Stone at One Roof on a Thursday afternoon providing free office hours to our members. He is a serial entrepreneur, angel investor and mentor to start-ups at the concept stage. Sign up for a free trial here with One Roof and gain access to our free office hours with experts.
3. Impact Investors
Impact investors also provide capital in exchange for convertible debt or ownership equity but the major difference is they look for a financial and social return. This route is best suited to businesses that are purpose driven and rapidly expanding. Giant Leap and Small Giants are examples of Australian Impact investors. You may also be interested in checking out the Nexus Australia Youth Summit. Normally held in March, it is a hotspot for networking for social entrepreneurs and impact investors. We also host Rachel Yang, Investment Manager at Giant Leap, on a Thursday afternoon for open and free office hours. Sign up for a free trial here with One Roof and gain access to our free office hours with experts such as Rachel.
4. Crowdfunding Sites
Crowdfunding sites host a range of investor types from the general public, philanthropists and accredited investors. It can expand your network and allows you to pitch on a single platform. Not For Profits might explore Donation based crowdfunding whereas there is also Rewards based Crowd Funding like Pozible and Kickstarter or Equity Based Funding like Birchal. Historically women are more successful at Crowdfunding than men, with women having 30% success rate of a successful campaign vs. 23% success rate of male campaigns in a 2015/16 PWC study. If you choose to go down this road it’s important to select a site that signs with your vision and goals as each site’s focus and incentives are different.
5. Incubators & Accelerators
Accelerators and Incubators typically specialise in early-stage businesses. They tend to offer mentorship, resources like office space, legal counsel, and capital. They tend to run for a specified and intense period, often around 3 months. This gives startups a chance to work through challenges with support and to validate their products.
We have seen and supported many One Roof members to successfully go through accelerator programs. Alison Hardacre, Cofounder of Healthkit went through the Springboard program (an accelerator specifically focused on women-led high growth tech start-ups), Maggie Scott, Founder of Parachute went through Springboard's earlier accelerator called the E3 program. NIMIS participated in Techstars and Finch participated and won best product demo in USA based fintech accelerator Envestnet/Yodlee. We’d also recommend you check out Startmate, Melbourne Accelerator Program (MAP) and SheStarts. When applying for accelerators be overly prepared and well researched. Look at what type of businesses they select, at what stage, whether you are the right fit, what you will get out of participating in their program, and what success looks like for you at the end of the program. Be very clear about this and ensure you ask a lot of questions before applying or accepting an offer. You don't want to waste time applying or participating in a program that is not suited to your needs.
6. Private Equity Firms
Private equity firms and high net worth families or individuals are funds and investors that invest in private companies in exchange for equity. They can give you access to everything from a few thousand to millions in investment, and again they tend to look for rapidly growing and highly scalable businesses. They tend to differ from an angel investor or VC in that they are investing their own money and can decide how quickly and how much they want to invest. The objective is to sell their stake a few years after investment to reap a significant profit from investing in your start-up but remember, choose wisely, as you will undoubtedly be on a journey with these people for a while!
When seeking investment, be prepared to be on the merry-go-round for a while! And be prepared to "kiss a lot of frogs" before you meet the right investor. It’s not a simple transaction – this decision and potential partnerships will shape the future of your business. Whilst it might seem that securing the cash is #1, we recommend two things. 1) Building rapport – you’ve got to connect with your investors and see the same future for the business. They are people with feelings, emotions and passions not just people with deep pockets. And 2) having a nonchalant attitude. You’ve got to have a plan B if the investment path doesn’t work out. Don’t ever go into a meeting seeming desperate for the money (even if you think you are desperate!)
On a final note, we are big listeners of Tim Ferris Show, a podcast where Tim Ferris interviews world-class performers from a range of areas and industries including investing, sports, business and art. You can learn a lot about the journey of building a business and raising capital through Tim and his interviews. We recently listened to one of his latest episodes with Cindy Whitehead, an American entrepreneur, who has built and sold numerous companies. This episode titled “How to Sell Your Business for One Billion Dollars” shares great insight around how to raise capital, build a strong team, negotiate and sell your business for a sh*t tonne of money. What we learnt? The experience will be both exhilarating and excruciating – so come prepared.